Some things make no sense but are done anyway. In a recent M&A deal, the escrow period expired and all funds had been distributed to shareholders from the escrow except for a portion of the proceeds that was withheld for an unresolved claim. Once the claim was resolved, the shareholders were left with an aggregate of a few thousand dollars in the escrow. Per the terms of the escrow agreement, the escrow agent distributed payments based on individual pro-rata portions of the remaining escrowed funds, with some payment amounts as low as one cent! The cost of sending checks for such miniscule amounts (admin salaries, stamps, envelopes, printing, etc.) is many times greater than the face value of those checks.

No shareholder wants to receive a check in the amount of one cent. What are you going to do with it? Go to the bank and make a $0.01 deposit? They end up getting thrown away. The escrow bank sends them because they don’t know what to do with the money and therefore just blindly follow the terms of the escrow agreement.

It seems to us that there is an obvious sensible alternative – give it to a charity. While the individual amounts are nominal, the aggregated amount over all transactions could be meaningful for the charitable organization. In addition to the benefit to the charity, shareholders are spared the frustration of such a ridiculous check, and all parties to the deal save money in transaction expenses. In our view, no checks should go out for amounts less than $20.00. Anything under $20.00 should be consolidated and sent to the designated charity. Every stockholder can afford that. If $20.00 sounds like too much (cheapskate), make it $10.00. Let’s just stop sending checks with face amounts of pennies.